Tuesday, March 13, 2012

Real Estate Rental Pricing Rising: Investment Opportunity Coming

The following excellent graph shows the LPS home price index measured against the CPI owner's equivalent rent index. You can see the extreme separation during the madness of the bubble years.  We are now back to the stage we were at in 1995 - 1998 when rents we at a higher point than home prices.  This chart shows that we are much closer to the bottom of the housing market than the top.  Once home prices experience their final push downward they will provide an extremely attractive investment opportunity for those that have the ability to manage single family homes.  See the 2012 Real Estate Outlook for an in depth discussion on this important asset class.

Sources: MISH, Lender Processing Services, Bureau of Labor Statistics

2 comments:

  1. Hmm, do not forget the mean reversion effect - the bottom might reflect the height of the price anomaly, and not simply flat-line at this point....

    How far it will go down is open to conjecture, but to limit market re-pricing to the statistical mean as a "bottom" may well be a flawed argument, especially considering the bulk of the standard deviations above the mean during the bubble.

    Uncharted territory?

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  2. I agree. I'll be posting a chart soon from the Fed that shows their forecast on how they did the stress tests this week. It shows at least another 20% down in housing. That kind of move will definitely bring us closer to the mean reversion.

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